EIU says GCC economy to double but could it treble in the next decade?

A report from the Economist Intelligence Unit forecasts that the GCC economy will more than double to $2.3 trillion over the next decade because ‘the oil price will hold up pretty strongly going forward’.

But then this is a conservative estimate. Over the past decade the GCC economy has more than tripled its GDP to around $1 trillion this year. The hot spot Dubai was the fastest growing city in the world from 2003-8, with 16 per cent annual growth ahead of anything in China. Doha was not far behind.

EIU report author Jane Kinninmont told The National: ‘The flip side is that oil dependency will continue and non-oil growth will still be dependent on the Government’. Well, sadly even with massive oil wealth you cannot magic a vibrant private sector into existence, or perhaps you can.

Private lessons

One of the lessons that might be learned from the 2003-8 boom years is that government getting into every sector of the economy does not work, particularly when it decides to take a direct management role rather than acting as a passive investor.

Greater openness to foreign inward investment goes hand-in-glove with a new friendliness to private enterprise. For future entrepreneurs are more likely to be found amongst globally savvy expatriates than locals with knowledge only of their own markets, although the two can work together.

Let them come and the private sector will really take off. Some are already in the Gulf, and many more are thinking of coming because the GDP growth rates at home look lousy for the next decade and business opportunities are very limited. Penal tax rates on the entrepreneurially gifted are also a factor.

Could Dubai, for example, lever its traditional strength as the free zone and trading hub for the region to become a new centre for global entrepreneurs? It should happen but the government would need to wind down some of its own business activities to give the private sector room to grow.

Privatization and MBOs

It could do that by privatizing state enterprises or arranging management buy-outs with new management sold an actual stake in an existing business. These are controversial ideas but in the wake of the worst economic slump since the 1930s a radical rethink is appropriate.

Usually what is needed to re-start a cycle of economic growth is a catalyst. In the early 2000s in Dubai that was the freehold ownership revolution. Changes to make foreign investment and residence more attractive could do the same thing now.

The EIU report said that the region should focus on industries where it has a competitive advantage such as the energy-intensive manufacturing of petrochemicals, plastics and aviation as well as mining and minerals-based industries. Then of course came tourism, hospitality, trade and logistics and aviation.

Looking at this long list, and considering the supply and demand picture for oil prices, and it is not hard to see the GCC doubling its GDP in a decade. But to treble it again would be a better achievement and finding a bigger role for private enterprise and foreign investment is the key to making that happen.

(Peter Cooper is the author of ‘Opportunity Dubai: Making a Fortune in the Middle East’ click here to buy a copy from Amazon.com or visit Spinneys or Magrudys in Dubai.)